As the world faces an increasing onslaught of new threats from biological and chemical weapons, viruses, and epidemics, one company is making products and treatments to assuage these risks, suggests Doug Gerlach, editor of SmallCap Informer.
Emergent BioSolutions (EBS) is a global specialty life sciences company focused on providing solutions that address medical and public health preparedness and response against accidental, intentional, and naturally emerging public health threats.
Emergent was founded in 1998 and currently offers eight products in the chemical, biological, radiological and nuclear (CBRN) defense line. Six target biological threats (anthrax, botulism, and smallpox) and two target chemical threats (nerve agents). The company’s pipeline includes therapeutics for influenza, dengue and Zika, as well as vaccines for anthrax, Ebola and Zika.
A continued focus on preparedness by the U.S. government will help drive growth for Emergent BioSolutions. Federal policies that foster innovation support rapid development and response for companies like EBS.
Globalization increases the likelihood of rapid disease transmission (as in the case of pandemic flu, Ebola and Zika), and the rising threat of antimicrobial resistance also demands new treatments.
During the quarter ended Sept. 30, Emergent closed on acquisitions of Sanofi’s ACAM2000 business, which includes the only smallpox vaccine licensed by the FDA, and of raxibacumab, an FDA-approved anthrax monoclonal antibody, from Glaxo.
Both acquisitions include the responsibility to fulfill long-term contracts to provide the products to government agencies. The company also signed contracts with the departments of Defense and State.
Analysts are looking for 20% annual EPS growth from Emergent over the next five years. We are a bit more conservative but see 15% annual growth as sustainable for both revenues and EPS.
Based on a high P/E ratio of 25, Emergent could reach a high price of $85 in five years, equaling an annual total return of 17.2% from the current price of $38. On the downside, a low P/E of 15 and trailing 12-month EPS of $1.69 provides a floor at $25, with an upside/downside ratio of 3.6:1, above our minimum 3:1 threshold.
Doug Gerlach is editor of SmallCap Informer.
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